Surge in global prices sweetens prospects for Kenya sugar industry

Tractors offload sugarcane at a factory in western Kenya. The global sugar price trend could help cushion Kenya from increased competition when all special safeguards on duty free imports from the more efficient producers within the Common Market for Eastern Africa are lifted.

A sustained rise in global prices of sugar, partly fuelled by recent floods in Brazil and Australia, could be a blessing for Kenya whose sugar industry remains shaky barely a year before all safeguards on duty free imports of the commodity from Comesa are lifted.

International prices of sugar have remained high for close to three years, with latest data showing that the cost of the commodity has hit a 30-year-high of about $800 per tonne this week as the floods in these two main producers take toll.

Though Kenya is not directly linked to the international markets, analysts and players in the local industry say the price trend could help cushion Kenya from increased competition when all special safeguards on duty free imports from the more efficient producers within the Common Market for Eastern Africa (Comesa) are lifted in March 2012.

International prices

“Global prices are quiet bullish and we don’t see much change in the immediate future. Focus is certain to remain on the global scene than local markets,” Peter Kebati, the chief finance officer at Mumias Sugar Company said in reference to March next year.

Kenya has since 2009 immensely benefited from the high prices of sugar in international markets.

Suppliers from Comesa have been diverting their stocks to better paying European, American and Asian markets, bringing some relief to local producers highly disadvantaged by high cost of production and inefficient production systems.

For instance new data from the Kenya Sugar Board (KSB) showed that in 2010 suppliers from Comesa only managed to ship in 40 per cent of the allotted duty-free import quota.

This trend was sustained from 2009 when the suppliers similarly brought in 40 per cent of the amount earmarked for shipment from the market.

“The country is a net importer of sugar, and in the past year or so there has been suppressed supply of sugar both regionally and internationally. Imports have therefore generally not affected local production and may not affect us much even next year,” KSB acting CEO said.

The government had banked on the privatisation of Sony, Chemelil, Nzoia, Muhoroni and Miwani to help unlock much need capital inflows estimated at Sh55 billion to help restore the competitiveness of the local sugar industry but that is yet to pass.

Treasury still holds on to a detailed proposal on the planned sale of the sugar mills—dampening hopes of carrying out any major reforms since the country has less than a year before the safeguards on Comesa imports are fully loaded.

Cabinet approved the sale of the millers in December last year but Treasury is first required to make presentations to the Parliamentary committees on Agriculture and Finance before the Privatisation Commission could invite bids for the sale.

Treasury is yet to make presentations to the Parliamentary teams.

A tentative plan unveiled by the Agriculture Ministry in early 2010 showed the government would sell a 51 per cent stake in five sugar companies to strategic investors and reserve another 30 per cent for farmers.

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